Trading Services

(xxii) Disclosure Issues

(1) Wood Burning Stoves/Fireplace Inserts

Licensees should be aware that there are several factors which affect fire insurance coverage on dwellings which contain a wood burning appliance. Although the BCREA Property Disclosure Statement addresses the issue, it does not, in itself, provide sufficient evidence that the property is insured, or is insurable.

The following issues should be addressed:

1. The wood burning unit itself must have the appropriate CSA, UCL or other required approval, or, failing that, specific individual approval by the Insurer.

2. The chimney must meet current municipal building code and/or insurer’s specifications.

3. The wood burning unit must be installed with clearances and a non-combustible base that complies with municipal and/or insurer’s specifications.

4. Application for insurance coverage must be made and notice given to the insurer that the dwelling contains a wood burning device. The insurer may then accept, surcharge or refuse the application.

A buyer of property where a wood burning device is included should be made aware of the previously mentioned factors and the following notation should be included in the Contract of Purchase and Sale:

Wood Burner May Void Insurance Clause

The Buyer acknowledges and accepts that the (select either wood stove or fireplace insert and/or chimney) installed on the property may not be approved for legal use and may render any fireinsurance void.

If required, the following condition may be added to the contract:

Wood Burner Insurance Confirmation Clause

Subject to the Buyer obtaining confirmation from his or her insurance agent on or before (date) that the (select either wood stove or fireplace insert and/or chimney) installed on the property will notvoid his or her fire insurance coverage.

This condition is for the sole benefit of the Buyer.

(2) Fire/Property Insurance

Insurance companies are more frequently declining applications for insurance coverage from individuals who have a bad insurance claim history. If, in the opinion of the insurance company, an individual has had too many claims, the insurance company may decline to provide fire/property insurance. The individual may have an existing policy in place with an insurance company but when he or she attempts to insure a different property, he or she finds the insurance company no longer wants his or her business.

A second scenario involves the property itself. The current owner of a property may have had insurance on that property for many years and the insurance company continues to provide fire/property insurance. However, when the property is sold and a new buyer applies for insurance, the insurance company may deem at that time that the property no longer qualifies for insurance coverage. This could arise where the electrical service is less than 100 amps, or the roof is old (perhaps 25 years or older), or where the home contains galvanized plumbing, old wiring, or a wood stove that has not passed inspection. With the exception of wood stoves, the insurance provider may consider these unresolved maintenance issues.

In a typical real estate transaction, the issue of fire/property insurance is not addressed until after the conditions are removed and, in some cases, closer to completion date. If the buyer is unsuccessful in obtaining fire/property insurance, the mortgage company is not protected and will not provide mortgage funds. The end result may be a collapsed transaction, the buyer’s deposit may be at risk, and the seller may suffer losses as a result of the transaction not proceeding.

To adequately protect your clients, the issue should be discussed with your client, including the potential problems that might arise if the buyer were unsuccessful in obtaining insurance. The buyer should decide if a clause should be included in the offer to confirm that the property and the buyer qualify for insurance coverage. The following sample clause could be included in a Contract of Purchase and Sale in such circumstances.

Fire/Property Insurance Clause

This offer is subject to the Buyer obtaining approval for fire/property insurance, on terms and at rates, satisfactory to the Buyer, on or before (date) .

(3) Property Disclosure Statements (PDS)

Separate disclosure forms now exist for Residential, Strata Title Properties and Farms and Acreage. Licensees are advised to use the correct disclosure statement. The specific Property Disclosure Statement forms, while not mandatory under RESA, assist sellers and licensees in providing information about known defects. Licensees should consider the following points regarding the PDS, property inspections and disclosure:

1. It is important to use the right PDS for the type of property being listed; e.g., use a strata title PDS for strata title properties.

2. Because use of the PDS is not required by law, some sellers may not want to complete it. This does not, however, absolve a seller from his or her obligation to disclose any known material latent defects in the property to a buyer and similarly does not relieve the listing agent from disclosure of any known latent defects to a buyer or his or her agent. A seller who does not wish to complete a PDS should be reminded of this fact.

3. Given that the PDS is widely used, a buyer’s agent could be negligent if he or she did not inquire if a PDS exists, and if so, to obtain and provide a copy of the form to the buyer. The PDS should also be incorporated as part of the Contract of Purchase and Sale.

In order to state clearly that the PDS is to become part of the Contract of Purchase and Sale, the following clause must be inserted in the contract: